CURRENCY BILL—COMMITTEE STAGE.
The Seanad went into Committee: Debate resumed.
SECTION 53.
Sub-section (6). If the average amount of legal tender notes outstanding during any half-year does not exceed four million pounds the Commission may, if it so thinks fit, during the ensuing half-year fix the maximum limit at the sum of one million pounds in excess of the said average amount and if and whenever the maximum limit is so fixed the same shall notwithstanding anything to the contrary contained in this section be and continue to be the maximum limit until the Commission fixes under the next following sub-section some other maximum limit.
I move:—
Section 53, sub-section (6). To delete the sub-section.
I do not know whether the Minister has had time to consider this amendment. It is the only way that I could show the House that the real effect of the section as drawn might be eventually gradually to wipe out the whole of this consolidated bank note fiduciary issue of the Free State when certain things occur. The section was put in because of the following recommendation in the Interim Report of the Banking Commission. It reads:—
"In order, therefore, to meet the fear of a shortage of legal tender currency and the parallel fear of a reduction in Government income, we have decided to recommend to you the fixing of the maximum bank note issue at the figure of six million pounds for a period of two years, with the proviso that, if at the end of any half-year the legal tender issue shall have fallen below four million pounds, the Currency Commission may reduce the bank note issue so that it shall not be more than one million pounds in excess of the legal tender issue."
That is put into the Bill for the same reason that the Banking Commission recommended. There can be no other reason, as far as I can judge. Both issues together are to supply the note requirements of the country. I happen to be in agreement with the Minister in letting a large increase of the currency requirements be met out of legal tender note issue, and not by an extension of the consolidated note issue. I think in my objections to some part of the majority report I said that under no circumstances should anybody have the right to put an arbitrary limit to the note requirements of the country, and these note issues, to my mind, and the increases ought to be met, as they are met now, by the fully secured notes— that is the legal tender. It is quite right that the Commission, acting under whatever arrangements the Oireachtas may make, should set a limit to the issues of the consolidated bank note, but in that case we may be very sure there will not be too many notes in circulation, because the banks will not force them out more than they can help. They have to pay pound for pound and lock up the money. It is a good, sound principle, according to my ideas. I believe certain bankers, for certain reasons, think it would be better to extend the fiduciary issue. I do not agree. I think these requirements have to be met out of the other issue, but I agree that if the fiduciary consolidated bank note issue is of immense importance to this country, England can do without it, I believe. But the pound note has built up the prosperity both of Scotland and Ireland. It was a system of giving credit and building, as a back to it, on the capital put into the different banks of the country, and enabling them to issue these one pound notes which, in the circumstances of both Scotland and Ireland, meant giving credit to the small people. The same thing exists to-day. The whole of this fiduciary note issue has been given at reduced rates up to to-day— we pay only seven shillings per cent. for it, and we are now to pay for the consolidated issue thirty shillings, and we are going to lose our till money, which is anything from £90,000 to £150,000 a year additional which the banks will have to pay.
I am not arguing on that point; it is a question for the country to say whether it is wise to take that amount of money out of the banks. But if we were to take away the whole consolidated bank note issue even at 30/- and put it all on the secured legal tender note, where the banks have to put up pound for pound, the banks could not afford to give the credit facilities to their customers which they can now. If we put anything in the Bill without anybody knowing about it, but which, according to the Bill, will wipe out the consolidated bank note issue of the country, we are doing an extremely dangerous thing. I hold that will happen if the section is left as it is. The section says:
"If the average amount of legal tender notes outstanding during any half year does not exceed £4,000,000 the Commission may, if it so thinks fit during the ensuing half year, fix the maximum limit at the sum of £1,000,000 in excess of the said average amount."
Only the other day, you may say, we could not have any legal tender note issue. We had gold, and we must always remember that it is only as a temporary state of affairs the Government is able to get this legal tender note issue. The Banking Commission say that they have made arrangements by which if gold comes back automatically our system will adapt itself to that. Here is one of the things we would have to consider if it came back. You have to look at what would happen if the legal tender note issue goes with the consolidated note issue, and it goes with it because, by this section, they are made interdependent. There cannot be more than £1,000,000 between the two.
Evidently the Banking Commission thought it a very necessary thing to keep up the revenue of the Government. In the case of such a huge currency matter, a matter of such vital importance to the country where the Government may make £100,000 a year out of the banks that is not a matter of importance. That does not seem to me to be the question. The question is: "Does this Bill interfere with the note issues of the country in such a way that if certain things happen great damage will be done?"
For instance, if the average amount of legal tender notes in circulation fell to £2,000,000, the effect of this section would be to reduce the consolidated banking notes by one-half, namely, to £3,000,000. Take it away and you would have a figure of consolidated note issue which is expressed by £1,000,000 in excess of the average that does not exist. If gold came it would not exist. I do not know whether the Minister thought of what the effect of this section may be. If money is required and it is decided to tax the bank in this way, surely some other way could be found for getting revenue instead of passing laws which automatically may completely wipe out what basically is the most important thing in the Saorstát—cheap money given to the bankers to enable them to meet the needs of the customers in a way that they could not otherwise do. I do not know what the Minister will say to this when he is replying, but if he can give proof that I am absolutely wrong, and if he can show that, if gold came back, the consolidated bank note issue would not be interfered with under this section, then it is all right. At all events, I cannot see it, and I have read the section again and again. I cannot see how the result that I have indicated is to be avoided. Under this section, if gold comes back and prices fall and if the amount of legal tender note issue goes down, then prices must go further down. I do not think that the Seanad and Dáil at all intended that we are to wipe out the consolidated note issue, or wipe it out to such an extent for the sake of giving a revenue to the Government without seriously considering the results.
This is rather a difficult question. There is a great deal that impresses me in what Senator Jameson says. The safety is that it is optional with the Currency Commission to create this restriction. But I can throw my mind back to a time when agricultural produce was very low, when pigs made 36/- to 40/- live weight, butter 70/- to 80/- per cwt., and prices were approximately 50 per cent. below the average. If at the end of such a bad period such as that, when you had prices of agricultural produce so very low, and the amounts of legal tender notes fell and the fiduciary issue was reduced proportionately I think the effect would be to restrict the natural recovery of prices and expansion of trade. The effect would probably be a long period of depression in prices—a period that might, in the ordinary way, be transitory and relatively short. I would ask the Minister to consider this and take as broad a view of it as possible, having due regard to what is dear to his heart—the national credit.
I have listened to Senator Jameson, and, having considered this question, I rather think that the profits the Government would derive from a tax on the consolidated note issue could not, except as a misnomer, be called profits at all. The banks pay to-day 7/- per £100, but the advantage is not to the banks so much as to the community. The profits go to their shareholders, and they are enabled to lend money at a low rate of interest. It is the people who do business with the banks gain. The customers of the banks are charged a low rate of interest. Now, when the charge for advances is increased it is strictly the community that pays, and it will be the community that will pay for this £300,000 so-called profit, or, what is going to be termed a profit to the Government. No doubt it is a profit to the Government, but it is a tax on the people. We hear a good deal of statements about the profits that are to be made on this, but it must be remembered that it is an additional tax on the people of this country. Senator Jameson visualises the time when the gold currency will return, and, under the operation of this clause here, if the legal tender issue was to fall in any one period to £2,000,000, then the combined note issue would be £5,000,000 in all. That will not supply the wants of the community.
There must be a certain amount of money to pay for goods offered in sale and exchange at any one period. Sometimes the demand is more than at other times, but there must be a certain elasticity. You must always maintain that, and there must be a certain amount of money in circulation to pay in exchange for the goods that are in the market at any one period of the year. That is supposed to be the normal amount in circulation. The Minister fixed that figure for the Saorstát at £12,000,000, based on the trade requirements of the country. Very well. If the combined legal tender note issue and the consolidated bank note issue falls to £5,000,000, necessarily, as a consequence there must be a difference between that £5,000,000 in circulation and the £12,000,000 required, and that £7,000,000 difference must be in the form of metallic currency, because the needs of trade require it. Otherwise trade will be stagnant; you would not have sufficient means to meet it.
If that should happen, what would the Government do? With their own currency there will be certain expense —the expense of protection of the currency, the maintenance of the standard of currency, the drawing in of light coins and the keeping of the metallic currency up to a standard. A number of such things caused Governments to introduce this fiduciary issue to enable banking corporations to issue paper not backed by any security in gold. The Government will have to resort to the very same thing, and the banks will be the only institutions in this country capable and adapted with their machinery to supply the means. They would still have to call on the banks purely as a matter of economy, and, because of their transactions with the community, to continue their consolidated note issue. That is what I think would logically happen if the legal tender issue, combined with the consolidated note issue, were reduced at any time to the figures given by Senator Jameson.
I think that the dangers that Senator Jameson fears are not real dangers. This section, although it does not exclude the position of gold coin being in circulation, has really reference to the period when there will be legal tender notes and no gold coin. If the Senator felt that it would help him in any way, I would be prepared to consider whether we could not have an amendment which would say: "if the average amount of legal tender notes outstanding during any half-year together with the amount of Saorstát gold coin estimated by the Commission to be in circulation," or something to that effect, then the consolidated bank notes shall not exceed a certain amount. That is, I would be willing to put forward an amendment if it would help the Senator, which would make it clear that on the one side we had consolidated bank notes, and on the other side legal tender notes or legal tender notes plus coin. The object of this section is to prevent the banks, if they were so inclined, pushing legal tender notes out of circulation altogether. I do not think it would be a desirable position where we would have, practically speaking, no legal tender notes in circulation and where we would have merely these consolidated bank notes which have relation to advances and naturally relation also to the other assets and liabilities of the banks.
Of course, even if there were no provisions such as these, and if the Government were inclined to take such steps, they could manage to keep legal tender notes in circulation, because they could give a direction that in no post office was a consolidated bank note to be accepted for any payment, and that no consolidated bank note was to be accepted for the payment of any debt to the Government. In that way they could make people who were perhaps unwilling to accept legal tender notes, use such notes. I think it is necessary that there should be something in the Bill to indicate that the currency of the country is not to consist entirely or, say, to the extent of ninety per cent. of consolidated bank notes which are not legal tender, and that some steps should be taken to keep a fair proportion of what is legal tender, whether it is in the form of legal tender notes or gold, in actual circulation. This section is merely a headline to the Commission. That of course means that there would be an obligation on the Commission to do that in specific circumstances if there were not other grave reasons against doing it.
I think the section as drafted does not contain any danger, but, however, if it is felt that there is some danger in it, in case gold coin came into circulation, I would be prepared to try to frame an amendment which would include gold estimated to be in circulation—we could not tell actually how much would be in circulation, but a calculation could be made—and the legal tender note. There is no danger under the section as it stands that there will be any shortage of currency, because even if the consolidated bank notes were reduced, the banks could obtain legal tender notes to meet their requirements. Anybody who thinks that as the Bill stands precisely at the moment there would be any danger of a shortage of currency is not taking a right view of the section.
I quite agree, but that is not what I mentioned. There is no limit put on the amount of the legal tender notes, and the requirements of the country could be met under the Bill in that way as far as I see it. I am perfectly in accord with him on that point, but the real point I am driving at has not been met by the Minister. He considers it an essential necessity of the case that legal tender notes are to be kept in circulation even against gold.
No. I am not committing myself to the actual words, but I will be prepared to accept an amendment which would be to this effect. If the amount of legal tender notes outstanding during any half-year or of legal tender notes plus gold coin estimated to be in circulation in the country, does not exceed four millions, then the Commission may do so and so. That is, I am not anxious to put anything into the section that would keep legal tender notes in circulation. What I want to do is to indicate to the Commission that there must be a certain proportion of legal tender, whether gold or legal tender notes, kept in circulation.
I misunderstood. I think the Minister does not want to create a situation where notes and gold are in circulation together as before the war. The Minister did not mean that a pre-war situation would arise when we might have all gold and consolidated bank notes.
In that case would not the right thing be that we should put a limit below which the circulation of consolidated bank notes should not be allowed to fall. That is the real danger we are driving at, and that would meet the case of gold coming in without wiping out consolidated note issue. The objection, I think, is that the Oireachtas is taking out of its own control the limitation of the amount of the consolidated bank note issue and handing it over to the Currency Commission, while, as the Minister said, giving them a very strong indication of the way they must act, that is, bringing down the consolidated bank note issue because of certain relations between it and the legal tender note issue. Unless we put a limit below which the consolidated bank note issue should not go, it will happen, probably, without the consent of the Oireachtas. If we were to put in a section pointing out that the consolidated bank note issue was not to fall below a certain amount without the consent of the Oireachtas, then we would have an opportunity of arguing this thing out whenever we see the situation arising. Otherwise I think it is an extremely dangerous section, even with the case the Minister makes, because it makes gold and legal tender notes drive out the other when a certain state of things arrives.
I think the suggestion Senator Jameson makes now is outside the general scope of the Bill, which makes the amount of the issue of consolidated notes depend upon the requirements as found by the Commission. I think a fundamental alteration would be involved in making the change he suggests. I pointed out that without the unanimous consent of the Commission there can be no reduction of the total of consolidated note issue for five years, so there is not going to be any such thing as a sudden reduction of it. This, as I have pointed out, is merely a headline to the Commission. The Commission is not obliged to do this. It is indicated to them here that a substantial proportion of the currency in circulation in the country should be legal tender. I think that is right. I do not think we should get to the position no matter what change may be when there is practically nothing circulated here but bank notes which are not legal tender and not based upon sterling or gold, but based upon advances, because the legal tender provided for in this Bill is based, unless there is a change in British policy, ultimately, upon gold. It is based upon sterling, and that was accepted by the Commission because they were satisfied that the British Government was going to adhere to the policy in operation.
I think the explanation of the Minister that the principle underlying this is that there should be a certain fixed relationship existing between the consolidated note issue and the legal tender note issue makes for sound finance. I am sure Senator Jameson will recognise that any tampering with the fiduciary issue circulation would tend to make confidence disappear and bring about just what he referred to as undesirable, namely, an exchange against us. I think that any tampering with this section will accomplish the very things Senator Jameson opposes.
I see the danger just as much now as ever. Unless this is met by putting some limit to the power of the Currency Commission there is undoubtedly and, I think, admittedly, a danger that the consolidated note issue in certain conditions can be wiped out because of the disappearance of legal tender note. The Minister admits that if gold comes in, legal tender notes will probably go in, and that legal tender here will be carried on by gold. I do not know. I ask the Minister if he could not look over this section and make sure that what I fear may not happen, that is all. I am sure he agrees with me that this consolidated bank note issue is of great importance to the country in many ways.
A good many people go further than I would in pushing it. I hold it is a thing that should be limited. He is inclined to put more on this consolidated note issue than I am. I think it ought to be limited. I do not think there should be anything left in the Bill that under any circumstances give any body of men power to practically wipe it out without the consent of the Oireachtas. That is the whole point I am making. If the Minister would think it over, and if he can convince us that it cannot be wiped out, and that there is a limit below which it could not go without the consent of the Oireachtas, then I would say our objections are met. I do not want to divide the House upon the subject, but I think if we are to stand by that clause as it is, and if the Senate passes a clause which, admittedly, in circumstances will practically wipe out the consolidated note issue, the Senate is making a mistake. If the Senate chooses to do that it can do it, but I think it is wrong. I think the Minister is wrong in not trying to meet the case and in not giving an assurance that the consolidated bank note issue cannot be wiped out in the way I say.
CATHAOIRLEACH
Would it not be desirable for the Senator to place his views in concrete shape in an amendment something to this effect, that in the event of the Commission determining that the consolidated note issue should be reduced below a certain figure they should not have power to do so without the consent of the Oireachtas? It is hard for the Seanad to deal with it without having a concrete amendment before it. The Senator has made quite clear the danger he anticipates, but he has not made clear how he proposes to obviate it. I think if he put his ideas into the form of an amendment for the House, then they would realise what the real question is.
If Senators will refer to sub-section (2) of Section 53 they will see that it is provided that the Commission shall take such steps, by restriction of issue or otherwise, as it thinks fit to ensure that the amount of the consolidated bank notes at any one time, exclusive of consolidated bank notes outstanding on an extraordinary issue made under this Act, does not exceed the amount appointed by or under this section to be the maximum limit for that time. It provides for the maximum limit, but you want to get a minimum limit. Senator Jameson asks for the addition of words fixing a minimum limit.
I suggest to Senator Jameson that if he actually saw, on paper and in proper form, the amendment with regard to gold coins it might alter his opinion.
Is the Minister prepared to go so far as to say legal tender, whether notes or gold or notes and gold?
Certainly that is what I meant.
The Chairman has seen what I am driving at. I was hoping the Minister would see the point of not letting the consolidated note issue, under any circumstances, drop below a certain figure without the consent of the Oireachtas. I did not like to propose an amendment of that kind suddenly here. If I took the Minister's own figure and brought it forward until he had time to consider it I would not have thought it fair to argue it before the House and take a division on it. If the Minister leaves it over until the Report Stage I am agreeable.
CATHAOIRLEACH
The bulk of the members of the Seanad, like myself, have got to take all those matters on trust. We cannot follow the complications between these various forms of tender, issue and so on. We have to trust our experts and the Minister. This is a matter to be adjusted between them. If you had put this idea in a concrete shape I thought it would help the Minister between this and the Report Stage.
I could hardly propose an amendment without debating it.
CATHAOIRLEACH
By consent, the amendment to sub-section (6), and also amendments to sub-section (7) are withdrawn.
Question—"That Section 53, as amended, stand part of the Bill"— put and agreed to.
Question—"That Section 54 stand part of the Bill"—put and agreed to.
SECTION 55.
Whenever a shareholding bank is for any reason temporarily unable to comply with the provisions of this Act in relation to the issue to it of consolidated bank notes or the having such notes outstanding and also whenever a Shareholding Bank has outstanding the whole of its quota and temporarily requires a further issue of consolidated bank notes the Commission may if it so thinks fit by unanimous vote and with the consent of the Minister make to such Bank an extraordinary issue of consolidated bank notes, but such extraordinary issue shall be subject to the conditions imposed in regard therto by this Act and also to the condition that the Commission may in addition to its powers under any other section of this Act, require such bank to give or provide to the Commission such extraordinary security as the Commission shall direct and also to the limitations that such extraordinary issue shall not continue for more than twelve months and may be terminated by the Commission at any time during such twelve months and that the amount of consolidated bank notes outstanding at any one time on such extraordinary issue shall not exceed the amount at that time of the accumulated profits in excess of capital of such Bank.
I move:—
In Section 55 to delete in line 34 the word "extraordinary."
This is a question of drafting. This section deals with extraordinary issue of consolidated bank notes, ordinary bank notes as distinct from legal tender notes, and provides that where a bank wants more bank notes than its quota it can get them on certain conditions, one of which is that it may be asked to get security. Under one of the previous sections the Commission can always ask a bank for security. What is puzzling me is, what is the meaning of the word "extraordinary"? Has it any real meaning?
As "extraordinary" has a particular meaning in this Bill, I think if the words "extra security" or "surplus security" were substituted it would be better.
Once they call for a security they can get all it has.
The draftsman seems to think that it does not matter much whether it is taken out or not.
Amendment put and agreed to.
Under Section 55 an extraordinary issue of these consolidated bank notes can be made. I think that is objectionable. The consolidated bank note issue corresponds with what is now known as the fiduciary issue. The fiduciary issue is practically a free issue, that is to say, banks having the privilege of issuing these notes pay nothing for them but the stamp duty. The amount of that fiduciary issue is little more than six millions at present. Over and above that, when the banks require currency there is a perfectly straightforward way of getting it. They can pay £ for £ for it. During the war that additional currency went up to something like seventeen or eighteen millions sterling. It went up to over twenty millions if you include the fiduciary issue. To-day it has fallen to something in the region of seven or eight millions. It has fluctuated up and down without any undue pressure on the banks or the community at large. Under this Bill, you seek to take power to make an extraordinary issue of these consolidated bank notes; in other words, to upset the present arrangement, which has worked satisfactorily for 100 years.
Under this section a bank will be empowered to go to the Commission and ask them for an extraordinary issue of consolidated notes. Then the bank will be called upon to pay certain penal rates. I believe I am correct in saying that that rate would amount, approximately, to 3½ per cent.
If it begins with five, you are putting it on all fours with the legal tender note issue which the bank would get to-day.
It is less favourable than legal tender. This is merely an emergency provision. There are various emergency provisions. This is a sort of section that might never be used. It enables notes to be issued if they are required, but the terms are such that no bank would look for them. They can only be outstanding for twelve months, and the rate of interest begins at 5 per cent. and increases ½ per cent. each month.
If that is so, why depart from the present system of paying £ for £? Why distrub the arrangement which has worked satisfactorily for 100 years?
This is purely an emergency provision and is common in most systems. This is our version of the emergency provision.
We are not quarrelling at present about the extension of note issue and advances. This is a clause to enable the Currency Commission to save a bank which has got itself into difficulties by issuing more notes and giving more advances than it should. The object is to tide it over its difficulties. A bank that has got into difficulties, and which the Commission is trying to save, could not take more legal tender notes, because it has not got any assets of that nature to buy them. To save it, it must be given an excess of its fiduciary issue at a price that will be charged in on its current expenses. I think the Government is right, under the circumstances of the Bill, where large note issues are to be given to the banks to make liquid sound advances which we hold are not liquid. Undoubtedly there will be circumstances where a bank pushing business on those lines will very likely require this clause or otherwise go down. This is a necessary clause in such a Bill. I objected to some of the other clauses, but I think this one is necessary.
Even in England, in some circumstances the discount rate goes to 10%, and the Bank of England is authorised to issue notes.
By legislation and by suspension of the Banking Act. They are not the same thing.
Not the case that Senator Jameson mentioned but in cases of emergency.
I think it would be well that the Seanad should bear in mind that the Commission cannot sanction the issue of fiduciary notes to a larger amount than £6,000,000 without the consent of the Minister. I am perfectly sure that the advances of the Joint Stock Banks in the Free State are at present at least £60,000,000. Surely 10% of these advances is liquid. This clause is put in to cover emergencies, and the idea in the minds of those who framed it was not to save a bank that got into difficulties.
I would recommend the Senator to read some of the other clauses in the Banking Commission's report in which they refer to the difficulties that a bank might get itself into, and the method of getting it out. It was out of such suggestions that this section is evolved.
I would draw the attention of the Seanad to the concluding portion of Section 55. Banks have subscribed capital, paid-up capital, and the difference between these two is known as the uncalled capital. I think in this case it is the unpaid capital and the accumulated interest of the banks that form the reserve. The last published report of the banks for all Ireland given in Thom's directory shows that the capital of these eight banks mentioned in the schedule amounts to £7,309,000. The reserve fund is given as £8,434,000, leaving a margin of £1,125,000. When the figures are analysed, and if they have reference only to the Free State, they will be considerably reduced. Possibly the margin will fade away entirely. The section does not at all provide the relief it is supposed to provide. As it stands, that is negligible. I do not know if the Minister or the Commission went into the figures bearing on the definition. A bank is given an issue of a certain amount for twelve months, and at the end of that time the guillotine falls. I think that the section should include these words, "unless the time rate be extended by the unanimous vote of the Commission and with the consent of the Minister." A bank that could not adjust itself at the end of a certain date might apply for an extension.
I would like the Minister to explain the meaning of the last line of the section. What is the meaning of the word "capital" there? Is it paid-up capital or nominal capital?
Senator Kenny raised that, and I meant to look into it. The intention was to refer to paid-up capital.
If it was subscribed capital, it is £25,000,000, and the reserve would be only one-third of that. If uncalled capital was meant, it would be £18,000,000. Necessarily, it must be paid-up capital is referred to.
In the light of this debate I hope we will be able to review this section again on Report. It is not at all clear what the Minister means when he talks about an emergency.
And whether it would be necessary to have legislation. I know of no pre-war powers about suspending. It is to be done at once, but it is by legal action. That is different from the proposals. I think we had better have it again on Report.
Amendment agreed to.
Question—"That Section 55, as amended, stand part of the Bill"—put and agreed to.
Section 56 ordered to stand part of the Bill.
SECTION 57.
The Commission shall make by regulation or otherwise such arrangements as it thinks proper for the retirement by Shareholding Banks of consolidated bank notes issued to them under this Act (including the retirement of any such notes which have become worn or damaged and the issue of new notes in lieu thereof) and for the cancellation and destruction by or on behalf of the Commission of such retired consolidated bank notes as it does not think proper to preserve for re-issue.
I move to delete the words "by or on behalf of the Commission," and to substitute therefor the words "by each Shareholding Bank."
This is another matter connected with the working by the banks. This section refers to the retirement and cancellation of consolidated bank notes. The cancellation and destruction of bank notes is a technical matter and it is work that is extremely critical. At present each of the banks of issue looks after this matter themselves. They have a highly trained staff to look after the cancellation and destruction of these notes, and they take very elaborate precautions to see that the cancelled notes are dealt with so that none of them can get out. The destruction of the notes is an extremely critical matter and has to be looked after very carefully. These are taken and burned in a furnace. They are collected in sacks and put into bundles. There is an officer who keeps a tally of what is in each sack, and there is a director present who supervises the work. They are then burned in his presence. The banks of issue do feel that if a new body is set up and a new staff is to look after the cancellation of the notes and keep the books connected with this matter, that it is quite possible that under an untrained staff these notes may slip out again.
That is the fear. It would be against the banks if those notes that they considered to be cancelled were to go out again. If these notes are put in circulation again it would be to the loss of the banks. It is for that reason that I move this amendment to ask the Government to leave the cancellation and destruction of the notes to the banks themselves, who at present have their arrangements for carrying out this work. Of course the banks of non-issue, who, under this Bill are going to get an issue, will have in their own staff proper officers to attend to this and to make arrangements for it. It is only a part-time job in any bank. The banks will feel far safer if this matter is left in their own hands. I do not see why the Government should object to this amendment. The British Government trusts the Bank of Ireland to burn the whole of the Treasury notes that are cancelled here, and we carry out that business for them. During the whole time these Treasury notes have been in circulation, I never heard anybody doubt the certificate of the officer of the Bank of Ireland that the notes had been destroyed. I think the Government would be wise to take this burden off their own officers and not set up an expensive staff to do this particular job. We could do the printing of the whole of these notes much cheaper than the Government can, but if they want to print them, let them. We do not mind that. But this is a different matter and should be left to the banks. It is highly technical and requires great accuracy and elaborate training on the part of the people who are doing it. As the section stands, it would not leave this to the banks.
As the section stands, it is optional with the banks. The words of the section are "by or on behalf of the Commission." There is nothing to prevent the Commission utilising the existing machinery for doing this if that is the desire of the banks, as it probably is. To my mind, there is nothing in the section to prevent this arrangement.
CATHAOIRLEACH
The difference is that the Senator wants to make it obligatory that this part of the work should be left to the banks.
There are only two banks doing it at present.
The banks of issue cancel their own notes.
Probably the others will, after the Commission have devised the machinery. We have that already in the case of the Bank of Ireland. What the amendment seeks is to let that stand and let the others make their arrangements, but I think the section as it stands is better.
I agree with Senator Bennett that the section as it stands is better than Senator Jameson's amendment would make it. While the Bank of Ireland, as the Senator says, destroys notes for the British Treasury, it does not do it as by right but by arrangement. The Commission should be left free to make the most economic arrangement they could.
Senator Jameson's argument, stripped of all the nice things about technicalities, means that without them the State is not in a position to get people either competent enough or honest enough to do the work. I think that is the argument when you have taken away all these things about technical experts and a highly trained staff. But for the life of me I do not see what these great technicalities are. Each note has a number. The notes that have to be destroyed are collected together, they are checked and the numbers entered in a book. They are then put into a bag, taken away and burned. Surely that does not require any very great training or technical skill. I venture to say that I could get half a dozen unemployed clerks in Dublin to-day who would be fully competent to destroy all the bank notes in Dublin. That is quite true. I have a recollection that some years ago some notes of the Bank of Ireland that were supposed to be destroyed were not destroyed. They got into circulation again. Is not that right? I have a distinct recollection that there were paper notes of the Bank of Ireland after they had been supposed to have been destroyed found to be in circulation, so that the technical staff we hear so much about made this mistake under the director's nose.
No, it appeared in the public Press and there was a prosecution because of the fact that the cancelled notes of the Bank of Ireland got into circulation again. When these notes were supposed to be placed in the bag the director must have been looking the other way, because certainly these notes were not burned. I say that the State, if it wishes to do so, is capable of doing this work. Accepting this amendment would be laying down in a section in an Act of the Oireachtas an admission that the State is not competent to get its own officers to do this work. I presume this Currency Commission will have officers, and I presume they will be honest men and men of intelligence who can be trusted to do this work, and I believe that they will be capable enough and honest enough to do it to the satisfaction of their employers. It is for that reason that I would be opposed to putting anything into a section that would be implying that the State is not competent to get officers to do this.
I am astonished at Senator Farren making a speech in favour of spending money unnecessarily.
With all respect, now I want to say that the bankers do not work for nothing.
The offer I am making is that in this case the bankers should do this work for nothing. They have to cancel and burn these notes for safety. If the Senator is right in what he has said about cancelled notes being put into circulation again does not that show that with all our care this thing happened, and what are you going to have with a staff that is inexperienced? That is the danger that the bankers are afraid of. And it is the bankers that will have to pay the piper. If they are not going to do the cancellation themselves it is going to be more dangerous in the future than up to this. If the Minister insists on this section going through as it is I do not want to divide the House on it, but I think it is a mistake and one of the blunders of this Bill. It will make it more expensive and more dangerous for the banks than at present.
Amendment, by leave, withdrawn.
Question—"That Section 57 stand part of the Bill"—put and agreed to.
SECTION 58.
Sub-section (3).—The Commission may, if special circumstances appear to the Commission to render such course expedient, by unanimous vote authorise a shareholding bank to pay out consolidated bank notes in respect of which it is not itself the responsible bank during such period, to such extent and subject to such conditions as the Commission thinks fit.
I move:—
Section 58, sub-section (3). To delete in line 14 the word "unanimous" and to substitute therefor the word "majority."
If the word "unanimous" is allowed to remain in this section in certain cases the banks will not be able to assist one another. There are occasions, such as fairs, where a great deal of currency is required. One bank may have enough of its own notes, but the trade carried on by its customers may be of such an extent that it may require further notes. In order to obtain permission to take up the notes of other banks under such circumstances it would require the unanimous consent of the Commission, and that, I think, is unreasonable. I have been given to understand the Minister has consented that in cases of fairs and markets the banks should be allowed to exchange each other's notes for the convenience of the people doing business at these fairs or markets.
CATHAOIRLEACH
Would it not be simpler to leave out the words "by unanimous vote" altogether, and then go on to say "the Commission may"?
That would do equally well, and, in fact, it would be better from my point of view. I do not say that it is likely to occur, but if there happened to be a permanent Government official on the Commission he could of his own initiative stop this being done, which would be a great inconvenience to the public at fairs. I have certain reasons for thinking that the Minister is prepared to accept this, or some form of words, which could carry out the same object, because if the matter were allowed to stand it would be a distinct hardship for the community.
I think the section does not require amendment. I need hardly proceed to resent the suggestion that the Government representative on the Commission will have no consideration for the interests of the community, and will be trying, at no matter what expense to the general public, to get a few pounds more into the Exchequer. I think it may be expected that the Government representative on the Commission, dealing with a matter like this, in which there would not be more than a few pence revenue, would be just as reasonable as anybody else. We put this in because we wanted definitely to carry out the suggestion of the Commission, and it is also in a slightly different form in Senator Jameson's report, that is, that a bank should not issue notes of another bank, and the minority report also contemplated that certain banks should not have a note issue. Where a definite cause is shown, nobody is going to object to perfectly reasonable regulations. As I understand the section it will not require special leave to be given for each fair. It will be possible for the Commission to make general rules which will govern this matter, and if that is so I think there is no danger under the section of the powers being rendered nugatory. I would not altogether like to agree with the majority vote of the Commission, because there has not been a strict practice in the past of paying out only the notes of the bank, and it is desirable to ensure that except where a really definite case is made out the general rule should hold. I do not think it need be feared that the Commission will refuse to meet the banks in any reasonable case that is made.
It is a case of convenience altogether to the trading community, and really to bring in the unanimous vote of the Commission in a matter of this description seems unnecessary.
CATHAOIRLEACH
I do not see any provision for a quorum for the Commission, and consequently if one of the members of the Commission is absent through illness or any other cause the Commission could not do this. This would tie them up, as there must be a unanimous vote, and that apparently means a vote of the whole Commission. Why not leave out "unanimous" and simply say "The Commission may do so and so"? When you say unanimous vote is it meant each member of the Commission must attend, or that all who attend must agree? That would be the simplest thing to say— that if it consists of four, for instance, the four should do it, but in its present form it seems to mean that every Commissioner must be present before a single penny is authorised.
It was not contemplated that it would be a case of considering each particular fair. What was contemplated was a series of general decisions modifying the general principle laid down in the Bill that a Bank was not to pay out other than its own notes. Then we authorise the Commissioners to make special concessions to meet certain cases. That would be done at some earlier meeting, and probably would not arise again for a considerable period or may not arise at all. It seems to me to be sufficiently important to lay down that in dealing with certain important matters we must have the unanimous vote of the Commission, and that this question of making regulations which would abrogate the general provisions of the Bill is important enough to be dealt with by the whole Commission.
Does the Minister not think that it would be better to give the Commission power to make regulations, to do this by regulation? As the section stands, it looks as if they would have to do these things ad hoc.
I would certainly agree to that if there is any demand for it.
Is this not the section which prohibits a bank giving English bank notes to a man who may require them when he is crossing to England?
This section deals only with consolidated bank notes.
If there is not a quorum of the Commission what happens?
It is laid down that where a thing has to be done by a unanimous vote of the Commission, it has to be done by all the Commissioners. For ordinary business there is a quorum of three.
CATHAOIRLEACH
The matter stands to enable the Minister to consider the suggestion providing that the Commission may issue regulations to deal with this matter so as to avoid the necessity of dealing with each case as it arises.
Amendment, by leave, withdrawn.
Question—"That Section 58 stand part of the Bill"— put and agreed to.
Section 59 ordered to stand part of the Bill.
SECTION 60—SUB-SECTIONS (2) AND (3).
(2) On and after the appointed day it shall not be lawful for any bank whether it is or is not a Shareholding Bank to issue or pay out, save as authorised by the Commission under this section, any bank notes other than consolidated bank notes and if any bank shall issue or pay out any bank note in contravention of this section such bank shall be liable to pay to the Commission a sum equal to one-tenth of the amount of such note.
(3) The Commission may in its absolute discretion authorise any bank to issue and pay out or to pay out after the appointed day such bank notes (other than consolidated bank notes) during such period, to such extent, and subject to such conditions as the Commission thinks fit.
I move to delete sub-section (2). This clause deals with the matter to which Senator Barrington referred a moment ago. The words of the sub-section are:
"On and after the appointed date it shall not be lawful for any bank whether it is or is not a shareholding bank"—
In this case anyone carrying on a banking business or office such as Cook's, could not supply the notes of banks of other countries to a tourist or traveller. The section continues:—
"To issue or pay out, save as is authorised by the Commission under this section, any bank notes, other than consolidated bank notes, and if any bank shall issue or pay out any bank note in contravention of this section, such bank shall be liable to pay to the Commission a sum equal to one-tenth of the amount of such note."
At present British notes are represented by Treasury notes. A Treasury note is not a bank note, and any of our banks could give them to a customer going across the water. But we are told that within a few months the Bank of England will take over the issue of Treasury notes and these Treasury notes will be represented by Bank of England notes. If this section is allowed to stand in its present form and a customer then came into a bank and said: "I am going across to Holyhead; give me some English notes," he could not get them under a heavy penalty. If anybody were going to France, and asked for some French bank notes, similarly they could not get them. I do not think it is wise to have such a provision if we want to induce the inhabitants of other countries to travel in this country or if we like to see some of our citizens going abroad, as some people would. It is a restriction I think that should not be imposed on any civilised community. Banks should not be forbidden to hand out any foreign notes. We should in every way accommodate our customers and travellers.
Supposing there are Americans here and they want American notes because they intend travelling across the water, as I have myself often required them, this clause prohibits them getting any such notes. I think the Minister should look into the matter. I do not know why the Minister should place this restriction on Irish banks and prevent them from handing the notes of any country over their counters for any purpose whatever. I submit that we are not likely to push into circulation in this country the bank notes of other countries, but this section will interfere with the issue of British currency in this country.
Senator Jameson ignores sub-section (3) of this section, which states:
"The Commission may in its absolute discretion"—there is no question of a majority vote—"authorise any bank to issue and pay out or to pay out after the appointed day such bank notes (other than consolidated bank notes) during such period, to such extent and subject to such conditions as the Commission thinks fit."
Sub-section (2) is necessary for various reasons. It is necessary because we must get in the existing bank note issue. That must be brought to an end, and it can never be brought to an end if the banks are allowed to pay them out. Then there is the whole question of the Northern position. We do not know what right of note issue the banks which have note issue here and in the North will have in the future, and while I presume the matter will be settled satisfactorily, there must be power here to see that no abuses arise.
You might have the position where Northern bank notes issued in the North would be paid out here, and that in effect we would not succeed in getting an end to the present issue or we would not succeed in doing more than nominally getting rid of the present issue. I think, therefore, this power is necessary. There are other reasons, but these are the two principal reasons. We must assume that the Commission will be reasonable if it has absolute discretion. By a majority vote, it could authorise the banks to pay out notes to any extent for any period. I think that that meets the case absolutely. If we remove sub-section (2), we cannot be certain of any advance in that matter, and we would have to make other provisions to deal with the particular problems that might arise, as I say, in regard to the existing note issue or in regard to the note issue of Saorstát banks which they would presumably continue to have in the North.
CATHAOIRLEACH
I think the House appreciates the reasons the Minister has given for the insertion of sub-sections (1) and (2), but do you not think that there is a difficulty in regard to the dispensing clause, sub-section (3)? Is it to work ad hoc, or should it not be amended so that this would be one of the matters in regard to which the Commissioners might issue regulations? Could this not be done by regulation?
We could insert some words such as "by regulation or otherwise," and then deal ad hoc with cases which were not covered by the regulations.
But how long will it be before the Commission is in a position to issue regulations? This section comes into operation the moment it is passed.
No; on the appointed day.
When is the appointed day?
The Commission can issue all its notes simultaneously.
Of course, this is a wonderful Commission that is going to be set up. It is apparently going to regulate everything and to make no blunders or mistakes, but I cannot see why the Oireachtas here should agree to hand over to it the power of saying whether the banks are to be allowed to issue to travellers any notes which they want. I do not think such power should be given to any body of men outside the Oireachtas in this country. Perhaps, as the Minister said, there are going to be difficulties in future with regard to banks in the North of Ireland, but surely it is open to him if he finds that the Act is not working as it should work, to come back again to the Oireachtas and ask them for further powers.
I do not think that any body of men should be given the power of interfering in this way with the banking business of the country, or that it should be at the ipse dixit of any body of men to say that the banks of the Free State are not to pay out notes which a customer wants. I do not think it should be a sufficient excuse for handing that power over to a body of men to say that something might happen in the future to upset the arrangements made in regard to the issue of bank notes under this Bill. If there is such a case to be made, the Minister has the House here to come back to. He can enlarge the Bill and prove his case before the House. I do not think that we should have it said here that the Oireachtas should take out of its own hands and put into the hands of a Commission such powers as are undoubtedly given by this sub-section. I certainly ask the Seanad to vote against it.
CATHAOIRLEACH
Is the real difficulty not to be found in the fact that under sub-section (3) the Commission are not ordered to make this provision? It is put very curiously—"if in its absolute discretion"—if it wants it, if it thinks fit. Do you not think that sub-section (3) should be so modified as to give a direction to the Commission to make provision for the issue of notes for the temporary accommodation of travellers—not to leave it to its discretion, but to impose the duty on it?
I do not see at the moment any objection to the suggestion of the Cathaoirleach, but I would like to have time to see how it could be worked out.
CATHAOIRLEACH
I could draft that clause in a few moments. It would simply state: "It shall be the duty of the Commission to prescribe regulations by which banks shall be permitted to issue notes for the temporary accommodation of travellers."
Would the Minister consider it and get us out of the mess?
We are not going to delete sub-section (2)?
CATHAOIRLEACH
No, we are not interfering with that. Sub-section (3) stands over for consideration on Report.
Amendment, by leave, withdrawn.
Question—"That Section 60 stand part of the Bill"—put and agreed to.
SECTION 61, SUB-SECTIONS (3) AND (7).
(3) The capital of the legal tender note fund shall be held by the Commission or at its disposal in such one or more of the following forms as the Commission in its absolute discretion shall think proper and in no other form, that is to say:—
(a) gold bullion;
(b) gold coins which are for the time being legal tender in Saorstát Eireann for unlimited amounts;
(c) money in any form which is for the time being legal tender in Great Britain for unlimited amounts;
(d) British Government securities;
(e) sterling balances on current or deposit account at the London Agency or any bank in Great Britain or Northern Ireland.
(7) At the end of every half-year the Commission shall value in accordance with current market values the capital assets of the legal tender note fund and shall ascertain the extent of the net surplus or deficiency, if any, of such capital assets as so valued (less by the capital amount of any temporary borrowing under the foregoing sub-section then outstanding) above or below the amount of legal tender notes outstanding at the end of such half-year, and shall as soon as may be after such ascertainment transfer (as the case may require) from or to the legal tender note fund to or from the note reserve fund capital assets in any one or more of the forms mentioned in sub-section (3) of this section equal in value to the amount of such surplus or deficiency, if any.
I move:—
Section 61, sub-section (3). To delete in line 51 the word "securities" and to substitute therefor the words "Treasury Bills and securities maturing within twelve months."
The object of this amendment is to limit the investment of the capital of the legal tender note fund to securities of short currency and thereby ensure, in so far as it is possible to do so, that there shall be no loss of capital when the investments are paid off. It is most essential that the fund which is to be the backing for the legal tender notes, in reality the credit of the State, should be of the utmost solvency and have the highest character, and the only securities which would be suitable for such a fund are those mentioned in the amendment. When one remembers that in the case of Consols there was a fluctuation in value from a maximum of 114 not many years before the war to a minimum of 44 in 1920, one realises that an investment even in the very highest class of long-term British securities is very dangerous. To safeguard, therefore, the credit of the country and the legal tender note fund, I beg to move that the investments under this section should be limited and should be—as is set out in the amendment—limited to Treasury bills which would have a currency of three months, and also to securities, of which there are quite a number, with a currency not exceeding twelve months. If that were done, then if the moneys received for the legal tender note fund were put into investments for the purposes of revenue, to produce revenue, then the capital of that fund would be preserved in its entirety and would not be liable, which it would be if it were put into ordinary British securities, to loss on realisation.
CATHAOIRLEACH
Is your amendment quite as complete as you wish, because you have mentioned something, Senator, about Treasury bills, with a three months currency?
I simply mentioned that to show that there are bills with a currency of three months.
This matter was, I know, fully considered by the Banking Commission and their view was that the Currency Commission should not be tied down as is suggested in this way— that it should be compelled to invest funds in Government securities, but beyond that, it should be free as to the amount it should keep in bank, the amount it could keep in cash and the amount it should keep in securities. I think that it is undesirable to limit the Commission. We must take it that they will exercise due care and that if the situation seems to indicate that a particular type of security is not as steady as it ought to be for their purposes, that they will avoid it. I would not care myself to limit them beyond what they are limited to in the Bill. As a matter of fact suggestions have come to me that they should not be even as much limited as they are in the Bill, and in fact I have had representations in favour of enabling them to purchase securities of other countries. I do not think that could be done in view of the scope of the Bill, but I certainly think there should be no limit other than compelling them to buy British securities.
There is another factor in this matter, that these are different to ordinary investments. In an ordinary investment, the interest may be safe, but in this case it is essential that the capital should be safe too, because the capital is the fund out of which convertibility is made. If you have a legal tender note and wanted change in London, you make a demand on the capital of this fund and the capital must not be allowed to depreciate. I think the Seanad has had many instances of how these securities can depreciate. I am not satisfied merely because this is a recommendation of the Commission. Commissions sometimes make mistakes, and I think in this matter our judgment is best. There is no technique involved. It is only a matter of common sense, of course, but the responsibility is ours. One might say that it is an unnecessary precaution, but it is a precaution we should take to safeguard our responsibilities to the State, because ultimately any deficit has to be met out of the central fund. I would ask the House generally to support the amendment.
I wonder does the Minister consider what is the gain to be made out of this? Is it at all comparable to the risk that is being run of a fall in the capital value of the securities held behind the Legal Tender Note Fund? I know the Chairman of the Banking Commission held that the Government should try to make as much money out of the cover that is put up by the banks for this issue as possible. If he did, he held views which I doubt any of the responsible bankers of this country really do hold. Even when they came to consider the fund behind these legal tender notes the majority recommended the building up of a reserve fund to meet the very thing which Senator Guinness says will happen, that is, that when the securities have to be met and sold they will be at a lower price than when purchased. The majority of the Banking Commission put up the recommendation that a reserve fund ought to be established to meet this very definite loss that might be incurred. I believe when we are going to establish a legal tender note issue in the Saorstát any man should be able to say there is no possibility of loss in the investment of the funds that lie behind that issue. The whole difference between Senator Guinness's proposal and what the Minister is fighting for is the admission of long-dated British securities. I really think the Free State should not, for the sake of one-half per cent. to be made out of the investment of the fund behind the legal note issue, let anyone say we need a reserve fund at all.
The Minister says he does not think it will ever be required. We do not know; we have seen very queer things in the last few years in this country. There might be a fall in long-dated British securities, and that would cause a deficiency. We ought not to pass anything that would make such a thing possible. Personally, I went over and consulted some of the best financial authorities in Great Britain. At first I was opposed to this legal tender note issue. I said to them, "Can you see this working in a practical way?" and they said, "Yes, if you take care that the money got for the legal tender notes is invested in Treasury bills and short-dated bills on which there can be no fall in prices. Take care you do not go into long-dated securities." This is financial advice as sound as you can get it in Great Britain. I think the Minister is wrong in taking the view of the Banking Commission, which took into account money-making and so on.
The amount involved, as Senator Jameson has stated, is so small that the advantage to be gained by having liquid assets is to the advantage of the State.
I support the arguments in favour of this amendment. The main object is to maintain a high standard of value of the proposed legal tender note. It is tied to the British legal note at the moment. We want to be on the right side, and this item (d) is the only weakness in the assets; the other assets will maintain themselves. The only item liable to fluctuation in value is British Government securities. At any time you might have rumours of a war; signs and portents might occur, and then the securities would go down in twenty-four hours. The point is, we want to keep our legal tender notes at as high a standard as a medium of exchange that we possibly can, and anything that can be done to support or strengthen the backing of that legal tender note should, I think, be agreed to by the Minister.
I see no reason why the Commission should be tied up in this way. It should be remembered, apart from a return to the circulation of gold, that there will not be a period when there will not be a substantial amount of legal tender notes in circulation. There is no need to visualise the position where every legal tender note will have to be met. The requirements of the country will demand the existence of legal tender notes, and there will be a substantial sum in circulation, apart from changing over from legal tender notes to gold. While the Commission must take care to have a substantial part of its assets actually liquid, it should be free to make the best disposal of the funds which it holds against these legal tender notes. I see no danger in that. If absolutely every penny had to be available for paying out on any day there would be a case for what Senator Jameson suggests, but that is not the position.
I quite agree it is very unlikely that every legal tender note would be presented at one moment, but in theory and practice it is wrong and unsound if such a fund as a legal tender note fund is to be invested in a security of which I have given you the classical example of Consols which, in a very few years, had fallen from 114 to 44. That is, I think, a direct proof of the contention.
Amendment put and agreed to.
I move:—
In Section 61, sub-section (7) to delete the sub-section.
Perhaps I may be wrong in my interpretation of the clause, in which case the Minister will correct me, but the way I read sub-section (7) is that at the half-yearly valuation of the securities the capital assets can be valued, and if the values at the end of the half-year are found to be above the purchase price the difference between the two can be carried as a profit to a fund which can be spent. I do not think any bank I know of would ever dream of proceeding to call a thing a profit which was only a book entry which had not been realised by the sale of the security which had made the profit. If this kind of bookkeeping is to be introduced, and if unrealised profits are to be written in as profits and allowed to be spent then the trouble is that if there are probably also unrealised losses the State has to make them good. On the one hand, when the value on the market has gone up the so-called profits can be taken, transferred to an account, and eventually reach the stage where they can be spent. If the losses are there they are also to be provided for out of the Central Fund, which means out of our pockets. I think we should prevent them spending unrealised profits. I think any body of bank directors who proceeded to pay dividends out of unrealised profits would, before very long, come to grief. The value of securities in the various banks in the Free State before the war was millions over what the banks paid for them. They were lying there and when the war came these securities fell. In order to keep them at the figure in the balance sheets we had to provide large sums of money out of profits. The bank shareholders know that dividends were kept down tremendously for that reason. We never divided the money until we sold the securities. When they were sold the transaction was ended and the people could do what they liked with the money. If this clause means that the accounts of the Commission are to be made up every half-year, and the unrealised profits due to an increase in market price of the securities carried to an account and looked upon as a profit, and then transferred to another account where it may be spent, I think that is wrong.
The profit on the note fund would be carried to the reserve fund and there trapped. Therefore it could not be spent, and the main point Senator Jameson has made will not arise. If there are profits they are transferred to the reserve fund and held there. If there is a surplus in the reserve fund it goes to the Central Fund.
Is it impossible for the money to be transferred from the reserve fund to the Central Fund?
In case of a surplus arising in the reserve fund it remains in it.
No surplus can go from the reserve fund?
Only when the reserve fund is built up.
Granted. When the reserve fund is built up; after that the surplus in it can be transferred to the Central Fund and the Government can spend it?
The position in the Bill is that the legal tender note shall be replenished from the reserve fund, and the note reserve fund from the general fund. The general fund, in the performance of the functions put upon it, can borrow from the Exchequer.
The proposition is absolutely unsound, that when securities are valued any appreciation should be taken into revenue. I have the opinion of a very eminent banker on the matter. This is what he says:
"The principle laid down in Section 61 (7) is indefensible. The appreciation of investments should not be considered as a profit and brought into any revenue account. The profit made on investments when they are sold is quite another matter, but no sound banking institution would consider as disposable profits an appreciation that was only found to exist as the result of a mere calculation, and had not been realised by a sale. On the date of the next valuation of these securities, the profit previously estimated to exist might have disappeared."
As Senator Kenny pointed out, you begin with the legal tender note fund, and where the crime takes place is in dealing with the calculated values of the capital assets. If the fund is inadequate the difference is made up by the note reserve fund and that is carried on to the general fund and finally to the Exchequer, which has to pay. If there is depreciation, as there may be, it would have to be met by the general taxpayer. Under all the circumstances, and in view of what Senator Jameson has stated, I think this clause ought to be deleted from the Bill.
If Senators will look at sub-section (6) of Section 62 they will see that there is reference only to a deficiency in the reserve fund. There is no reference to a surplus in the reserve fund. The position is that if this estimated surplus were transferred to the reserve fund it could not go beyond the reserve fund. It might, by building up the reserve fund more quickly, lead to the stoppage of transfer from the general fund and towards the building up of the reserve fund. What Senator Jameson fears could not happen, and profits estimated on transfer to the reserve fund could not be spent. If that occurred time and again, and if there was no reverse process, they would ultimately build up the reserve fund beyond the one-tenth which is the figure fixed in the Bill. As Senators will see by sub-section (6) of the next section there is no reference to any dealings with the reserve fund except in the case of a deficiency. That deficiency is to be made up from the surplus in the reserve fund.
What benefit does the Minister see in leaving it in the Bill? Why should this be put into the Bill if it is not to be of some use? If the money entered in the books is not to be made use of somewhere, why have the entry at all? It is only bookkeeping.
It is for the purpose of operating the principle of the half-yearly adjustment, where there is a deficiency, or where there is a surplus. The fund is adjusted each half-year, to an exactly equal value of the legal tender notes outstanding. If there appears to be a deficiency through some slight fluctuation, that is made good from the reserve fund. If there is a surplus it is transferred to the reserve fund. The object of the various provisions is to have a half-yearly valuation, and to get the value of the investments, etc., as a whole, to conform to the value of the legal tender notes outstanding.
Does the Minister say that on the note reserve fund there cannot be any deficiency?
Will the Minister say that the note reserve fund cannot be ascertained half-yearly and as to what happens if there is any deficiency?
There is a provision for making good that deficiency.
That line at the end of the note reserve fund reads: "And if on any such ascertainment any such deficiency is found to exist, shall, as soon as may be, transfer to the note reserve fund from the general fund in any of the forms mentioned." That means that one is dependent on the other. It is a regular series. If that is found insufficient to bear its responsibilities we simply go and borrow from the Exchequer.
If, eventually, there is a profit arising from this matter, surely it is the property of the State. I do not know.
It is a thing that is now too much in the air.
I do not know that it is. The underlying principle of this Bill was supposed to be a profit. But the period at which the allocation of the profits will come to the State is so long, and the variability of the succeeding adjustment will be so slight, that the prospects of any excess of profits eventually to the State is very slight, I take it that such variations should be inherent in the Bill.
I understood the Minister to say that in no possible circumstances could any surplus or profits get into the pockets of the State.
If the reserve fund is built up the income of the reserve fund goes into the general fund. The position was that these profits would go to increase the reserve fund. They could not be taken out of the reserve fund except for one purpose only, and that is to meet the deficiency that may arise. If they remain in the reserve fund, there being no need to take them back, the profits will go to the general fund. The purpose really of the whole thing is to preserve always the half-yearly adjustment, to preserve the absolute quality.
The Minister in the Bill confuses the actual profits with the paper profits. There is a great deal of difference between these. You have a stock station. At one time you have to sell cattle at twenty-five per cent. below another time. It would be the same with the other securities. You could not sell one of these securities supposing you wanted to sell them at the same price to-day as what they would be six months ago or six months hence. If securities were up at the end of this half year, and if you were to take the profit, look at the position when at the end of the next half year the securities may be down again. There is an absolute departure in this Bill from sound banking principles, and the Government is usurping banking functions right throughout this Bill.
In view of the fact that the Seanad has passed the amendment moved by Senator Guinness dealing with securities and any fall or depreciation in their value, I do not think that this amendment is so valuable at all.
Amendment, by leave, withdrawn.
Question—"That Section 61 stand part of the Bill"—put and agreed to.
Sections 62, 63 and 64 agreed to.
SECTION 65 (2).
(2) Whenever for any reason the amount of consolidated bank notes outstanding with a shareholding bank otherwise that on an extraordinary issue is in excess of the amount permitted by or under this Act to be so outstanding, the amount so in excess shall for the purposes of the foregoing sub-section be deemed to be outstanding on an extraordinary issue.
I move:—
To add at the end of the sub-section the words "after the expiration of six months from the date of any reduction of the quota of a shareholding bank."
This is to meet the case where there is a reduction in the bank's quota. A shareholding bank that has a large reduction in its quota is only given 14 days to get in its surplus notes. As a matter of practice I do not think that could possibly be done. A bank without any wish to exceed its quota, could not very well get in its surplus notes in the time. I think the period is far too short. I suppose if the bank set to work to try to get in its notes, the penalties are so severe, that the bank would manage to do it. But it is not reasonable to ask them to suffer all these penalties if they do not do it within 14 days. We must look at this from the point of view of the Currency Commission. If the bank was suddenly faced with a large reduction in its note issue it would be very wrong that this surplus should be called in in that time. The bank should be given time. The Minister should consider what will happen later on when the Commission makes a reduction in the quota.
CATHAOIRLEACH
Is the Senator's reference to the amendment in the Order Paper correct? Sub-section (2) only deals with the question where the amount of the consolidated bank notes, otherwise than on an extraordinary issue, is in excess of the amount permitted. Is that the proper place for the amendment to come in?
I think Senator Jameson is making some mistake about the 14 days. The penalty operates at once.
Yes, that is so. I was reading Section 68 instead of Section 65. In Section 65 there is not even the 14 days given. It is worse.
No, but it is better from the point of view of the Bill. The position is simply this, that if for any reason, which may include a reduction of its quota, the bank has more notes outstanding than it ought to have, then it has to pay on those notes.
We are making special arrangements for the first issue of notes. That is because the variations will be very large, but the ordinary variations will not be so much, as the banks have their own notes coming in every day. There is no bank that cannot call in a large proportion of its issue within an extremely short period. There may be other reasons than the mere reduction of the quota by five per cent. or ten per cent., or something like that. I think you may take it that the variations in the quota from time to time will be comparatively small. There may be various reasons for the reduction of the quota, and the banks may not be entitled to have so much notes outstanding. It seems to me it is no hardship on a bank except when you are having big changes that are bound to occur at the initiation of the scheme. It is no hardship when a bank has more notes outstanding than it ought to have to make it pay. If you do not, then you are giving it a privilege which it ought not to have. If a bank had to bring in half its total note issue, that would be extremely difficult, but there is not going to be such a change except a reason occurs. If a change occurs it should be given effect to. There is no hardship on the bank. It will seldom happen that within a short period a bank will not be able to get down to the amount of quota to which it is entitled. I do not think there is any reason for giving such a period as is mentioned in the amendment; even if there was a case for giving fourteen days, which Senator Jameson thought was in the section, no case could be made for a longer period.
The Minister is more optimistic as to what the banks can do in this respect than the banks themselves. Notes go to the Rest, and it is impossible to get them back in the time the Minister thinks. Probably we will learn a great deal about that in the first two years, but that we should lay down without any experience as to what will happen in the next two years is unwise. After that there is a period of three years in which there will be fixed issues. At the end of that period it will be possible to see what a bank has to pull in in its advances. The Commission says then you have not enough of advances to justify your issue, and we will take your issue down by a certain amount. It may be considerable, and that amount which the bank happens to have out in the country to-morrow pays five per cent. for everything over and above the new authorised issue. That seems a genuine hardship. I think the Minister himself foreshadowed that fourteen days is no good, but that he should give some period during which a bank should not have this five per cent. suddenly charged on an issue which it was justified in having a few days before. It is not fair or right.
CATHAOIRLEACH
Would it not meet the case to say "Any excess issue shall be deemed, etc., after the expiration of a period to be fixed by the Commission?"
I would like to look at this matter again. It would be possible to make a concession in certain circumstances.
Amendment, by leave, withdrawn.
Section 65 put and agreed to.
Sub-section 1 (b) of Section 65 says that where consolidated bank notes are outstanding, as I take it, in excess of the quota, they shall be subject to the full rate, which is described as 2 per cent., on the excess of the amount of consolidated bank notes outstanding. Would the Minister let us know whether that means, in addition to the 1½ per cent. have they also to pay the 2 per cent.?
If there is £7,000,000 outstanding, then £6,000,000 would be charged 1½ per cent., and the other £1,000,000, 2 per cent.
Dealing with the rates we have to pay in future for these consolidated bank notes, there has been a good deal of discussion as to free till money. The Minister is quite clear that the banks are going to have no more free till money. That word has gone out, but there is a difference of opinion as to what rate we are going to pay for what will be available as till money. I would like the Minister to tell us will there be till money available in consolidated note issue which can be looked on as till money at the rate of 2 per cent? Is there any extension at all of the £6,000,000 at the rate of 1½ per cent., which will in any shape or form be used as till money at 2 per cent.? There was at one time discussions about this. I believe I am not far wrong in saying that the Chairman of the Banking Commission expressed an opinion in favour of, even, free till money. The Minister may not think it judicious to say anything on the subject, but I believe it is a fact that certain members of the Banking Section of the Commission had not fully recognised the position in this matter. They thought there was going to be some section put into the Bill which would give the banks till money at a rate of 2 per cent. I would like to have it made clear whether this is a possible addition to the Bill.
What it comes to is this: that a bank, having got its quota, could go to the Commission and say: "Let us have more, for which we will pay two per cent." Is that possible?
What is provided for is contained in sub-section (5) of Section 53, as amended yesterday. It was suggested by the banks that if six million legal tender notes and six million of consolidated bank notes were not sufficient for the requirements of the country, including till money, and if there was no possibility of extending the amount of the consolidated note issue the banks, instead of paying two per cent. for till money, would pay whatever was the value of the money, because they would have to get legal tender notes for till money. Sub-section (5) was amended yesterday. Before this was inserted there was no power to increase beyond six millions. It states:
"If the average amount of legal tender notes outstanding during any half year which expires during the initial period is not less than six million pounds the Commission... may if it so thinks fit fix the maximum limit at such amount as it considers proper having regard to the total amount of liquid sound advances by shareholding banks to persons in Saorstát Eireann... and such other matters as it considers relevant."
That means that if twelve millions is not sufficient for the requirements of the country, including till money, that the banks will not be, as they would have been under the original draft, obliged to get their till money in the shape of legal tender notes, but will be able to get the additional amount, subject to the agreement of the Commission, in consolidated bank notes that will cost them two per cent.
That is the arrangement during the initial period; what about after?
After the initial period the Commission will be there. Before this amendment was put in they were tied slightly in the initial period. At the end of the initial period they will fix whatever amount they think proper having regard to all the circumstances.
Will one of the circumstances that they have to take into consideration be the till money of the banks? There is no section in the Bill that will make them take into consideration the till money.
Then what is the point? Would it mean that six or seven millions is to be settled as the consolidated note issue for the period of three years, and that has to be settled in view of the advances of the banks and their relationship to each other. The amount of each bank is arranged on that. The question of till money is not at all taken into consideration. We know that the note demands of the country require twelve or thirteen millions. The bank note issue will not be much more than about six millions at the end of the initial period. The Minister has met the banks with regard to the initial period. I am not asking about that now. I want to arrive at a clear understanding that when the amount, whatever it be, is fixed there will be something like six millions of legal tender notes out. The banks will, of course, put into circulation all their consolidated bank notes, because these are the notes that they will get at one-and-a-half per cent. They will put them into circulation. The rest of the notes they have will be legal tender notes, and, therefore, after the first two years the banks will be paying the full value of money, at least three per cent. or more for the notes they are using in their tills, because the rest will be out in circulation. Of course some notes will come in, but the banks will reissue them, and so, on balance, the banks will be paying at least three per cent. for money they are now getting for nothing. It is well that the Senate should know what this means, and what the amount of till money is.
In 1924 this till money, as far as we can estimate it, for the Irish Free State was something like six and a half millions. In 1921 it was between eight and nine millions. In the bad times, when we had reduced it, and when every effort was made to bring down till money to the very smallest figure that would carry on the business of the country, it amounted to £2,862,000, or nearly three millions. We used to get that for nothing, and now we will have to pay three per cent. for it. Therefore, on that issue the banks are to be mulcted to the tune of £90,000 a year. I do not know if that was mentioned in any speech of the Minister's. I am not arguing against it, but I say it was understood, and I heard responsible bankers say that they believed that they were going to get their till money after the initial period at two per cent. I just want to make absolutely certain that that is not true. What they will have to pay is nearer to three and a half per cent. than two per cent.
I think the thing could be put in a different way. In fixing the total amount of the consolidated notes it is provided by Section 53, sub-section (4) that the Commission have regard to the total amount of liquid sound advances to persons in the Saorstát and such other matters as are considered relevant. It is my understanding of the Bill that these "other matters" will include the general assets and liabilities of the banks, the requirements of the country, and the requirements of the banks in regard to till money amongst other things. If additional consolidated notes are issued to the banks having regard to their till money requirements and those notes cost them only two per cent., then I contend the banks will be paying two per cent. for their till money even though in actual practice they put these till money notes out in circulation and keep legal tender notes in their tills. And while the thing can be viewed as Senator Jameson views it, I think it can be equally well viewed as I put it. If, having regard to their till money requirements, banks are allocated the full amount of bank notes that cost them two per cent. then they will only pay two per cent. for their till money in spite of their paying these notes out and having legal tender notes that cost them more than consolidated bank notes in their tills.
Does that mean that the amount of bank note issue is to be increased?
There is provision for it.
So that the Commission dealing with bank note issue is also to take into account the till money and is to provide this two or three million of till money in increased consolidated bank note issue at two per cent. and thus raise the quotas of the banks above six millions so that the banks can get till money at two per cent.
There is nothing in the Bill to prevent it provided the liquid sound advances are there.
That is a brand new thing that I never even dreamt of. We have been talking of a consolidated bank note issue of six millions. Does this really mean that that amount can be raised to eight or nine millions if the Currency Commission chooses, and if they can give till money at two per cent., and that this Bill gives them leave to increase the consolidated bank note issue up to eight or nine millions? Because if it does I think the sooner we take a very serious view of the Bill the better, because I hold that it is extremely wrong that anybody or any Commission should have the right to increase the consolidated bank note issue to any such amount, and I never dreamt of it for a moment. I am very glad I got that from the Minister. It really means that the consolidated bank note issue will be increased by an amount for which the banks will only pay two per cent. to meet the till money.
I would not put it that way. All the circumstances have to be taken into account and the requirements in regard to liquid sound advances stand all the time. But there is no limit placed upon the amount either upward or downward by which the Commission may adjust the total amount of consolidated note issue.
That means that this figure I have given of nearly three million is going to be taken into account and that it is in the power of the Currency Commission to enlarge by fifty per cent. any figures of the consolidated note issue mentioned in this House as long as we have been debating it.
That is purely theoretical, because till money is taken into account in the six millions. It may not have been fully taken into account, I do not know. The banks refused to disclose any information at the time they were asked, and the best case was made that could be made. Six millions is supposed to include it. It may be that some fraction more is required, I do not know. This point of increasing the total amount to provide for till money is really theoretical. Nothing of the kind will happen, and this increase will be subject to the sanction of the Minister for Finance and no consent will be given to such a proposal. But if some reasonable amount of increase was suggested, and that were one of the considerations that led to that increase, then I do not suppose the consent would be withheld.
We would be on very much safer ground if you allow no increase for till money or anything else. If required, additional currency can be taken in legal tender notes, which has been the system in force for a hundred years and has worked successfully.
There is another point. The Minister says that till money was taken into account when settling upon this six million. I do not like to give an absolute denial, but as far as my belief goes he is absolutely and totally wrong. It was never considered at all. I think if he reads the Banking Commission report he will find that is so.
I have seen it in the report.
I shall be glad if the Minister would read it. I never heard any reference to till money.
In paragraph 20 of the report I find this:—
"That figure has been reached after careful study of data showing the apportionment of aggregate business between the Saorstát and Northern Ireland furnished by the banks themselves, as well as considerations of the number of branches. It has been recognised by the Commission that in this problem the question of till money must also be considered. In the past the banks have been able to keep their own notes in their vaults, issuing the same as they were needed, so that they were not obliged to count either as secured or as fiduciary notes paper which had not been paid out but was awaiting issue. Under the proposed plan it will be difficult for them to follow this same method, as will appear upon a perusal of the entire report. Some paper at least will necessarily be lying idle in their vaults, so that a certain enlargement of the note issue limitation appears to be unavoidable. After due study of all these considerations the Commission has tentatively fixed the aggregate limit for bank notes in the Saorstát at six million pounds sterling."
So that the Commission specifically took the question of till money into account in fixing the figure.
The real facts of the case had better be known. The million-and-a-half added to the four million was undoubtedly given to enable the banks of non-issue to get an issue without stripping the other banks of issue. There is no question about that. The question of the till money there is mentioned only in the most theoretical and casual manner. I undoubtedly can prove to the hilt that six million was arranged to meet the division amongst the banks and not because of the question of till money. But, leaving that out of account altogether, the question before the House now is that we are going to give the Currency Commission leave to increase the consolidated bank note issue by a considerable amount. How it is fixed I do not know. That is to be given at two per cent., after the first two years are over.
The excess over six millions will be at two per cent. if the amount is increased.
I do not say it is till money. If the Commission considered it and decided there was no further claim for till money they might still increase the issue, because the requirements of the country needed it and the banking facts justified it.
I have always taken for granted that the requirements of the country were the things that were to be considered.
I did not know that they were to have leave to consider the extension of two per cent. and that one of the things that they could consider was till money, which would amount to nearly three millions. It is said now that the banks, for the future, are to get their till money at two per cent., and that was one of the things that largely influenced, I have no doubt, some of the bankers on the Commission in agreeing to the report. Now, is it a fact that the Commission may increase this six millions in regard to the needs of the country that will be met by the larger amount of legal tender notes? Will they have leave, and nobody to check them, to raise the consolidated bank note issue to seven or eight millions, the surplus above the six millions being given to the banks at two per cent? Is that part of the Bill?
I am not being cross-examined, and I can only answer when the Senator sits down. He has asked me so many questions that I cannot answer them all at once. I will read for him what is in the Bill, and he can understand it as well as I can. It says it should fix the maximum at such amount as it considers proper having regard to the total amount of liquid sound advances by shareholding banks to persons in Saorstát Eireann then existing and such other matters as it considers relevant. Now, these are the powers of the Commission.
Senator Jameson seems to be alarmed that under the Bill these extra facilities are going to be given to the banks. It is clear and explicit that these facilities or elasticity are to be granted to the banks according to the needs of the country. He told us that there was a large amount of till money required to be kept in the banks for the purpose of fairs and sending out to branches and such periodical things as call for it, and that that would amount to three millions in some years and six millions in other years.
The banking people of the country found that there was only periodical use for a certain amount of money. They kept that in their tills. That money was available at times for going to fairs and that class of thing. Now Senator Jameson seems alarmed that this facility should be given to the banks. Is he alarmed at the soundness of the position of the banks to bear that responsibility?
He thinks the Irish banks could not bear that responsibility. Surely two or three millions is not going to affect the stability of the banks of this country having a subscribed capital of twenty-five millions and an uncalled capital of eighteen millions odd? Surely with these immense reserves, together with their rents amounting to seven or eight millions, he does not think two or three million pounds more of responsibility would shake the foundations of banking credit in this country? I am surprised at the sense of alarm created in the House by the suggestion that there should be such a margin in the Bill.
The Senator, in talking about the way till money was used, is quite wrong. The till money was in unissued notes. The moment they were handed across the counter we were debited with them, and we had to keep them within the limit of the note issue allowed to us. The two per cent. is a note issue to the bank; it is part of the currency of the country. Till money was never part of the money of the country. We have something like four and a half millions of what are now consolidated bank notes. They were watched very carefully. That has been increased to six millions, and now it is going to be increased to seven or eight millions, that is three or four millions more than it was before this Bill was introduced. Does the Senator know what that means?
Of course they will when they are going to get it at two or two and a half per cent.
The alarm is that we increase the powers of this Commission to double the amount of the consolidated note issue of the Free State. If the Senator studied a few books that have been written about the issue of bank notes, and also the measures taken to safeguard the position, I think he would see that this is not a thing to be passed in a hurry. I am sure the arrangement is quite good, as far as the banks are concerned. I am not arguing in the interests of the banks in this matter. The Minister has told us that one of the things going to be taken into account is the till money, and that there is some sort of working arrangement that the till money is to be got at two per cent. over and above £6,000,000.
I did not say anything like that at all.
CATHAOIRLEACH
We are having a Second Reading Debate, and, while I do not minimise the importance of what the Senator calls attention to, as there is no amendment further discussion must be held over for the Report Stage. It will be open to the Senator then, if he wishes to put down an amendment, to call attention to this particular matter. In the absence of an amendment, I cannot have a roving controversy.
Sections 66, 67 and 68 agreed to.
Question: "That the schedules and title stand part of the Bill," put and agreed to.
Bill ordered to be reported, with amendments.
The Seanad went out of Committee.
Bill reported with amendments.
